Prowling bears may yet maul Footsie

FOR the second successive day, the stock market rallied. Underpinned by Wall Street's breaking its seven-day losing streak, the FTSE 100 closed up 106.7 at 4297.3, recovering nearly 300 points in three days.

But dealers warn the rise is unlikely to be sustained. They say bears who have sold short and driven the market down are closing their positions, pushing prices sharply higher.

It started nervously. After trading lower, the FTSE was tentatively ahead when Wall Street opened. The Dow Jones oscillated between positive and negative in the opening half an hour before trading 25.89 points up at 8566.29 by the time London closed. Sterling slipped back against the dollar at $1.569. The euro also fell back to $1.008 and 64.2p.

Financial scandals and economic gloom are making it far harder to impress investors, as mobile phone firm mmO2 is finding. Its shares surged nearly 10% on surprisingly good customer growth, but the gains shrank back, taking it 2 1/2p higher by the close at 49p.

'It is as if no one believes what is coming out that this is real,' said one analyst.

Vodafone extended Wednesday's rally, rising 3 1/2p to hit the crucial 100p mark. Its broker gave the firm's books a clean bill of health this week, and now Cable & Wireless is doing the same. C&W rose 7p to 175 3/4p on favourable reaction to an analysts' briefing with new finance director David Prince, already dubbed 'Prince Charming'.

Prince said he was 'confident' no accounting problems would emerge at the group, criticised in the past for its policy of swapping telecoms capacity with competitors and then booking it as sales.

Banks and life assurers helped the market upturn, as expectations rose that low interest rates are here to stay for some time. Low rates cut banks' cost of funding and reduced the risk of customers defaulting on loans.

Barclays rose 24p to 499p, HSBC, mulling whether to take over a Mexican bank, leaped 13 1/2p to 732 1/2p,

HBOS climbed 24 1/2p to 632p and Royal Bank of Scotland was 50p dearer at 1650p. Among life assurers, Aviva, the former CGNU, increased 12p to 432 1/2p and Prudential climbed 10p to 503p. Sentiment was boosted by Financial Services Authority chairman Howard Davies. He told the FSA annual meeting he is satisfied the insurance industry is currently meeting minimum solvency requirements.

Fund manager Schroders was the biggest blue-chip gainer, up 42p to 532p. Amvescap also increased this week's gains, up 26 1/2p to 506 1/2p.

The wooden spoon went to Rolls-Royce, down 3 3/4p to 155 1/4p. In a surprise move, finance director Paul Heiden is leaving to become chief executive of engineering group FKI, up 2 3/4p to 135p.

Shares in video games retailer Game Group rebounded 13 3/4p to 111 3/4p after being hit by reports it had lost a contract with supermarket chain Sainsbury, which it denied. Finance director Martin Long added support by forking out £75,000 to buy 75,000 shares at 100p each, taking his stake to 169, 584.

Respectable full-year figures from software company Misys helped boost its shares 39p to 220p. It is to float its life and pensions advisory division within two years.

Medical research linking hormone replacement therapy treatments with ovarian cancer hit Galen Holdings, down 15p to 340p. The Northern Ireland drugs company said the data was old and the science of oestrogen therapy has moved on substantially.

Sheet music publisher Boosey & Hawkes slumped 25p to 159p. Talks to sell its instruments business to private equity firm Close Brothers are foundering over price.

Aviation Partners were suspended at 1 3/4p on the junior Aim market after it struck a deal to buy four jet aircraft from Chauffair, a private jet business in administrative receivership.